Working Paper: NBER ID: w8737
Authors: Saul Lach
Abstract: Using a unique data set on store-level monthly prices of four homogenous products sold in Israel, I study the existence and characteristics of the dispersion of prices across stores, as well as its persistence over time. I find that price dispersion prevails even after controlling for observed and unobserved product heterogeneity. Moreover, intra-distribution mobility is significant: stores move up and down the cross-sectional price distribution. Thus, consumers cannot learn about stores that consistently post low prices. As a consequence, price dispersion does not disappear and persists over time as predicted by Varian's (1980) model of sales.
Keywords: price dispersion; market dynamics; consumer behavior; empirical analysis
JEL Codes: L11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| price dispersion exists across stores for homogeneous products (L11) | significant differences in prices (P22) |
| significant differences in prices (P22) | intradistribution mobility among stores (J62) |
| intradistribution mobility among stores (J62) | consumers cannot learn which stores consistently offer low prices (D43) |
| price dispersion persists as predicted by Varian's model from 1980 (D43) | price dispersion exists across stores for homogeneous products (L11) |
| price dispersion is prevalent and varies across different products (L11) | significant differences in prices (P22) |